Pareto-improving optimal capital and labor taxes

We show a standard model where the optimal tax reform is to cut labor taxes and leave capital taxes very high in the short and medium run. Only in the very long run would capital taxes be zero. Our model is a version of Chamley??s, with heterogeneous agents, without lump sum transfers, an upper bound on capital taxes, and a focus on Pareto improving plans. For our calibration labor taxes should be low for the first ten to twenty years, while capital taxes should be at their maximum. This policy ensures that all agents benefit from the tax reform and that capital grows quickly after when the reform begins. Therefore, the long run optimal tax mix is the opposite from the short and medium run tax mix. The initial labor tax cut is financed by deficits that lead to a positive long run level of government debt, reversing the standard prediction that government accumulates savings in models with optimal capital taxes. If labor supply is somewhat elastic benefits from tax reform are high and they can be shifted entirely to capitalists or workers by varying the length of the transition. With inelastic labor supply there is an increasing part of the equilibrium frontier, this means that the scope for benefitting the workers is limited and the total benefits from reforming taxes are much lower.

Optimal feedback control rules sensitive to controlled endogenous risk-aversion

The objective of this paper is to correct and improve the results obtained by Van der Ploeg (1984a, 1984b) and utilized in the theoretical literature related to feedback stochastic optimal control sensitive to constant exogenous risk-aversion (see, Jacobson, 1973, Karp, 1987 and Whittle, 1981, 1989, 1990, among others) or to the classic context of risk-neutral decision-makers (see, Chow, 1973, 1976a, 1976b, 1977, 1978, 1981, 1993). More realistic and attractive, this new approach is placed in the context of a time-varying endogenous risk-aversion which is under the control of the decision-maker. It has strong qualitative implications on the agent's optimal policy during the entire planning horizon.

Synthesis of medium-chain-length polyhydroxyalkanoates in arabidopsis thaliana using intermediates of peroxisomal fatty acid beta-oxidation.

Polyhydroxyalkanoate (PHA) is a family of polymers composed primarily of R-3-hydroxyalkanoic acids. These polymers have properties of biodegradable thermoplastics and elastomers. Medium-chain-length PHAs (MCL-PHAs) are synthesized in bacteria by using intermediates of the beta-oxidation of alkanoic acids. To assess the feasibility of producing MCL-PHAs in plants, Arabidopsis thaliana was transformed with the PhaC1 synthase from Pseudomonas aeruginosa modified for peroxisome targeting by addition of the carboxyl 34 amino acids from the Brassica napus isocitrate lyase. Immunocytochemistry demonstrated that the modified PHA synthase was appropriately targeted to leaf-type peroxisomes in light-grown plants and glyoxysomes in dark-grown plants. Plants expressing the PHA synthase accumulated electron-lucent inclusions in the glyoxysomes and leaf-type peroxisomes, as well as in the vacuole. These inclusions were similar to bacterial PHA inclusions. Analysis of plant extracts by GC and mass spectrometry demonstrated the presence of MCL-PHA in transgenic plants to approximately 4 mg per g of dry weight. The plant PHA contained saturated and unsaturated 3-hydroxyalkanoic acids ranging from six to 16 carbons with 41% of the monomers being 3-hydroxyoctanoic acid and 3-hydroxyoctenoic acid. These results indicate that the beta-oxidation of plant fatty acids can generate a broad range of R-3-hydroxyacyl-CoA intermediates that can be used to synthesize MCL-PHAs.

Uric acid is a danger signal activating NALP3 inflammasome in lung injury inflammation and fibrosis.

RATIONALE: Lung injury leads to pulmonary inflammation and fibrosis through myeloid differentiation primary response gene 88 (MyD88) and the IL-1 receptor 1 (IL-1R1) signaling pathway. The molecular mechanisms by which lung injury triggers IL-1beta production, inflammation, and fibrosis remain poorly understood. OBJECTIVES: To determine if lung injury depends on the NALP3 inflammasome and if bleomycin (BLM)-induced lung injury triggers local production of uric acid, thereby activating the NALP3 inflammasome in the lung. Methods: Inflammation upon BLM administration was evaluated in vivo in inflammasome-deficient mice. Pulmonary uric acid accumulation, inflammation, and fibrosis were analyzed in mice treated with the inhibitor of uric acid synthesis or with uricase, which degrades uric acid. MEASUREMENTS AND MAIN RESULTS: Lung injury depends on the NALP3 inflammasome, which is triggered by uric acid locally produced in the lung upon BLM-induced DNA damage and degradation. Reduction of uric acid levels using the inhibitor of uric acid synthesis allopurinol or uricase leads to a decrease in BLM-induced IL-1beta production, lung inflammation, repair, and fibrosis. Local administration of exogenous uric acid crystals recapitulates lung inflammation and repair, which depend on the NALP3 inflammasome, MyD88, and IL-1R1 pathways and Toll-like receptor (TLR)2 and TLR4 for optimal inflammation but are independent of the IL-18 receptor. CONCLUSIONS: Uric acid released from injured cells constitutes a major endogenous danger signal that activates the NALP3 inflammasome, leading to IL-1beta production. Reducing uric acid tissue levels represents a novel therapeutic approach to control IL-1beta production and chronic inflammatory lung pathology.

Effect of cAMP on macromolecule synthesis in the pathogenic protozoa Trypanosoma cruzi

Macromolecule synthesis of Trypanosoma cruzi in culture was monitored using radioactive tracers. Cells of different days in culture displayed a preferential incorporation of precursors as follows: 1 day for (³H)-thymidine cells; 3 days for (³H)-uridine cells, and 4 days for (³H)-leucine cells. Autoradiographic studies showed that (³H)-thymidine was incorporated in the DNA of both kinetoplast and nucleus in this order. Shifts in the intracellular content of cAMP either by addition of dibutyryl-cAMP or by stimulation of the adenylcyclase by isoproterenol, caused an inhibition in the synthesis of DNA, RNA and proteins. Addition to the T. cruzi cultures of these agents which elevate the intracellular content ofcAMP provoked an interruption of cell proliferation as a result of the impairment of macromolecule synthesis. A discrimination was observed among the stereoisomers of isoproterenol, the L configuration showing to be most active.

Optimal Monetary Policy in a New Keynesian Model with Habits in Consumption

While consumption habits have been utilised as a means of generating a humpshaped output response to monetary policy shocks in sticky-price New Keynesian economies, there is relatively little analysis of the impact of habits (particularly,external habits) on optimal policy. In this paper we consider the implications of external habits for optimal monetary policy, when those habits either exist at the level of the aggregate basket of consumption goods (‘superficial’ habits) or at the level of individual goods (‘deep’ habits: see Ravn, Schmitt-Grohe, and Uribe (2006)). External habits generate an additional distortion in the economy, which implies that the flex-price equilibrium will no longer be efficient and that policy faces interesting new trade-offs and potential stabilisation biases. Furthermore, the endogenous mark-up behaviour, which emerges when habits are deep, can also significantly affect the optimal policy response to shocks, as well as dramatically affecting the stabilising properties of standard simple rules.

Optimal Martingales and American Option Pricing

Pricing American options is an interesting research topic since there is no analytical solution to value these derivatives. Different numerical methods have been proposed in the literature with some, if not all, either limited to a specific payoff or not applicable to multidimensional cases. Applications of Monte Carlo methods to price American options is a relatively new area that started with Longstaff and Schwartz (2001). Since then, few variations of that methodology have been proposed. The general conclusion is that Monte Carlo estimators tend to underestimate the true option price. The present paper follows Glasserman and Yu (2004b) and proposes a novel Monte Carlo approach, based on designing "optimal martingales" to determine stopping times. We show that our martingale approach can also be used to compute the dual as described in Rogers (2002).

Optimal Climate Change Policies When Governments Cannot Commit

This paper examines the optimal design of climate change policies in the context where governments want to encourage the private sector to undertake significant immediate investment in developing cleaner technologies, but the carbon taxes and other environmental policies that could in principle stimulate such investment will be imposed over a very long future. The conventional claim by environmental economists is that environmental policies alone are sufficient to induce firms to undertake optimal investment. However this argument requires governments to be able to commit to these future taxes, and it is far from clear that governments have this degree of commitment. We assume instead that governments cannot commit, and so both they and the private sector have to contemplate the possibility of there being governments in power in the future that give different (relative) weights to the environment. We show that this lack of commitment has a significant asymmetric effect. Compared to the situation where governments can commit it increases the incentive of the current government to have the investment undertaken, but reduces the incentive of the private sector to invest. Consequently governments may need to use additional policy instruments – such as R&D subsidies – to stimulate the required investment.

Endogenous Price Flexibility and Optimal Monetary Policy

Much of the literature on optimal monetary policy uses models in which the degree of nominal price flexibility is exogenous. There are, however, good reasons to suppose that the degree of price flexibility adjusts endogenously to changes in monetary conditions. This paper extends the standard New Keynesian model to incorporate an endogenous degree of price flexibility. The model shows that endogenising the degree of price flexibility tends to shift optimal monetary policy towards complete inflation stabilisation, even when shocks take the form of cost-push disturbances. This contrasts with the standard result obtained in models with exogenous price flexibility, which show that optimal monetary policy should allow some degree of inflation volatility in order to stabilise the welfarerelevant output gap.

Optimal contracting with private information on cost expectation and variability

We study the screening problem that arises in a framework where, initially, the agent is privately informed about both the expected production cost and the cost variability and, at a later stage, he learns privately the cost realization. The speci c set of relevant incentive constraints, and so the characteristics of the optimal mechanism, depend nely upon the curvature of the principal s marginal surplus function as well as the relative importance of the two initial information problems. Pooling of production levels is optimally induced with respect to the cost variability when the principal's knowledge imperfection about the latter is sufficiently less important than that about the expected cost.

The Timing of Asset Trade and Optimal Policy in Dynamic Open Economies

Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national policymaker can choose a policy rule which reduces the work effort of households in the policymaker’s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the policymaker’s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule.

Subsidies as Optimal Fiscal Stimuli

In the theoretical macroeconomics literature, fiscal policy is almost uniformly taken to mean taxing and spending by a ‘benevolent government’ that exploits the potential aggregate demand externalities inherent in the imperfectly competitive nature of goods markets. Whilst shown to raise aggregate output and employment, these policies crowd-out private consumption and hence typically reduce welfare. In this paper we consider the use of ‘tax-and-subsidise’ instead of ‘taxand- spend’ policies on account of their widespread use by governments, even in the recent recession, to stimulate economic activity. Within a static general equilibrium macro-model with imperfectly competitive good markets we examine the effect of wage and output subsidies and show that, for a small open economy, positive tax and subsidy rates exist which maximise welfare, rendering no intervention as a suboptimal state. We also show that, within a two-country setting, a Nash non-cooperative symmetric equilibrium with positive tax and subsidy rates exists, and that cooperation between trading partners in setting these rates is more expansionary and leads to an improvement upon the non-cooperative solution.

The Fair Trade movement: an economic perspective

Fair Trade (FT) products such as coffee and textiles are becoming increasingly popular with altruistic consumers all over the world. This paper seeks to understand the economic effects of this grassroots movement which directly links ethically-minded consumers in industrialised countries with marginalised producers in developing economies. We extend the Ricardian trade model and introduce a FT sector in developing South that offers a fair wage – the FT premium. There are indeed positive welfare effects from FT but those come at the expense of rising inequalities within South which are in turn a rational by-product of FT. The degree of inequalities depends on the specifics of the cooperative structures in the FT sector. Given the rigidities and inequalities FT introduces and rests upon, this form of alternative trade appears to be only sustainable as niche movement.